Mick Davis, the former chief executive officer of Xstrata Plc, raised as much as $3.75 billion from investors to buy assets and turn his X2 Resources into a mid-tier mining company.
The five-member financing group comprises Asia’s largest raw-materials trader Noble Group, private-equity fund TPG Capital and sovereign-wealth and pension-fund investors, X2 said, without naming the funds. It got $2.5 billion of committed and as much as $1.25 billion of conditional equity funding.
South Africa-born Davis, 56, is looking to repeat his success at Xstrata, where he led the management team that transformed the $500 million-market-value coal producer into a $50 billion giant through a decade of mergers, acquisitions and expansion. He left after Glencore International Plc completed its $29 billion all-share takeover of the company last year.
“Davis now has the firepower to take on new mining assets for development and for reinvigoration,” said John Meyer, an analyst at SP Angel Corporate Finance LLP in London. “This is a team which knows the sector well and has a proven track record in creating value out of existing and developing mines.”
Davis collaborated with former Xstrata Chief Financial Officer Trevor Reid, 53, to found X2, which is run from London. Reid also left Xstrata after the takeover, which saw Glencore chief Ivan Glasenberg became CEO of the combined entity.
“The capital with gearing puts the target size at the $500 million to $2 billion mark for assets,” said Paul Gait, an analyst at Sanford C. Bernstein Ltd. in London. “So we are talking about medium-sized copper mines or reasonable zinc assets and thermal and met coal.” Metallurgical coal is used to make steel.
Some of the biggest names in the industry are keen to make acquisitions just as the world’s largest producers including Rio Tinto Group shun their unwanted mines. Barrick Gold Corp.’s former CEO Aaron Regent and former JPMorgan Chase & Co. banker Lloyd Pengilly are among those raking through mining assets offered for sale by global resources companies.
“The presence of so many new funds combined with Davis’s new mega-mining fund, X2 Resources, highlights the perception of value within the sector,” Meyer said. “Investment of these new funds could help to lift the sector off its relatively low base. Sector rotation away from technology stocks and back into ‘tangible assets’ may also help to lift sector valuations.”
The five investors providing funds to X2 will contribute in equal amounts, the company said in a statement today.
“We have attracted a very prestigious core group of large-scale, high-quality investors who share our vision of building a new mining group with the potential to generate attractive returns,” Davis said. “The timing for this venture remains very opportune and we will now focus increased attention on starting the investment process.”
X2 has studied an offer of less than $1 billion for BHP Billiton Ltd.’s Australian nickel assets, a person familiar with the plan said earlier this month. BHP has booked impairment charges on the Nickel West assets of almost $1.6 billion in the past two fiscal years after prices for the metal declined.
There’ll be assets available for the “next two years or so while we still have the choppy commodity prices from the hangover effect of the last 10 years of capital ill discipline,” Gait said.
Australian private-equity fund IFM Investors also has considered investing $500 million in X2, people familiar with the plan said in January. Davis plans to keep his venture private and may study selling once it grows enough to return value to its investors, according to the people.